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## Understanding Zero Coupon Bonds

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**Zero coupon bonds is a bond**that is issued at a discounted price and redeemed at par at the time of maturity.**Lets try and understand**this through an illustration**Let us assume that Mr Rahul**has invested Rs. 920/- in a zero coupon. Let us further assume that after 1 year he would receive Rs. 1000/- .**In the instant case Rahul**pays Rs. 920/- (Discounted price) and he would receive Rs. 1000/- (Par value) after 1 year.**Return (yield) on the bond**for Rahul is 8.70% and can be arrived as follows (1000 – 920) / 920**Thus Zero Coupon Bond is nothing but a terminology used**for a bond that is issued at a discounted price and redeemed at par on maturity**Hope you have understood the**Concept of Zero Coupon Bond Please give us your feedback at professor@tataamc.com